My arch-nemesis has been in the news a couple of times in the last few days. It would seem to be another opportunity for a rant from the independent bookseller, but I promise to try to avoid complaining. The news items actually gave me pause as I tried to figure out how the world works. Yes, at my age, I’m still trying to figure it out.
The news of Amazon’s greater than expected quarterly loss (note that “greater than expected”; nobody was expecting them to actually make money) caused an almost 10% drop in their stock price. Incidentally, this drop in value lowered Jeff Bezos’ net worth by about 3 billion dollars. Of course, that is a smaller percentage loss to him than it would be to me. What amazes me is that it has taken so long for investors to notice that a major company is losing money; as I looked at a chart of the stock’s value over the last five years, there is a steady upward trend until this year. I have wondered for a long time why this is true. I thought perhaps investors were looking forward to the day that no one could make a purchase anywhere else, Amazon increased the price of goods to all-time highs, and years of losses would be recouped in a few short months. But let’s face it: investors today aren’t looking at the long term. The quarterly bottom line is all that counts, much to the detriment of research and development which would be expensive now but bring great rewards in the future. Why has Amazon gotten a pass on this short-term profit mind-set, at least until this week? And is the drop just a glitch? I don’t understand the world of finance, but I do understand that you can’t stay in business if you don’t make money, and that many a business has collapsed under the stress of over-expansion. I guess the answer to this puzzle remains to be revealed.
The other Amazon news that caught my eye this week was the announcement of “Kindle Unlimited.” This new service allows readers unlimited access to Amazon’s “library” of about 600,000 titles for $9.99 a month. My mind-set being what it is, my first thought was “What are they up to now?” I am not fond of reading e-books, and if I do download one, or a few, it’s because I’m traveling and don’t want to pack my suitcase with books, allowing no room for clothing. I am perfectly happy to pay the price at iBooks. Thus I was not aware until I did a little research that there are already at least two other similar services, Scribd and Oyster, which have extensive libraries and increasing subscriber bases. As a seller of traditional books that you can hold, feel, smell, and use as a face covering while sleeping outdoors, I have been paying less and less attention to the electronic book world. There are paper book readers and electronic book readers, some adamantly attached to their chosen format and some willing to cross over as the situation dictates. I looked into selling e-books through my shop, but concluded that the projected revenue would not be worth the aggravation and time. The Kobo system for independent shops is complicated, at least for the retailer, and still needs some technical shaking out. Customers who would purchase through my business would do it to be supportive, but for most consumers, there are too many better options. So I concentrate on the (many, thank goodness) readers who prefer paper.
Further reading about Amazon’s new offering yielded some interesting insights into subscription plans. Amazon’s “library,” which appears huge on the surface, currently consists primarily of titles from their own publishing imprints, self-published e-books, and some older titles. They have not reached agreements with any of the Big 5 publishers for this service, so don’t expect to find most of the newest bestsellers, or any of the “Prime Crime” cozies that are so popular. These will have to be purchased separately. Given the current antipathy between the large publishing firms and Amazon, it may be a while before these books are available. In fairness, I have to point out that I also learned that the other subscription services started with libraries that were limited, if not in numbers, in “name recognition.” Amazon’s other offerings of this type, in music and movies, started with limited offerings and grew over time.
I wondered how these services actually make money. If every subscriber read 3 books a week, certainly the fees to the publishers would exceed the revenue collected. I found that the average is actually 1 book a month. There are some heavy users, just as there are of Netflix, but in general, people don’t have the time to read (or watch too many movies). So the average subscriber is paying $9.99 a book. Hmmm! That number rings a bell. My suspicion, based on nothing but personal experience, is that many people subscribe to services they use rarely or never. They forget to cancel, especially if there is an initial “free” period of time, or optimistically believe that “next month” they will use the service. My own example is my membership at the Y; I really am going to start exercising regularly, and I don’t want the hassle of signing up again when I’m ready. I wasn’t able to find numbers of dormant subscribers, but my intuition is that there are a lot. There are similar “frequent” buyer plans in the physical book world, where customers pay a yearly membership fee and receive discounts and other perks. Often the discounts don’t reach, much less exceed, the cost of the membership, but people continue to join.
So what have I figured out about how the world works? People invest in unprofitable businesses. Consumers purchase subscriptions or memberships for things they use rarely or never. Why? That’s still a mystery to me.